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(1) What is DRG? Diagnosis Related Group A classification system that groups patients according to principal diagnosis, presence of a surgical procedure, age, presence or absence of significant co-morbidities or complications, and other relevant criteria (DRGs and the Medicare Program, 1983) OR A classification of hospital case types into groups that are clinically similar and are expected to have similar hospital resource use. The groupings are based on diagnoses, and may also be based on procedures, age, sex, and the presence of complications or co-morbidities (JC Langenbrunner et al, 2009) OR Grouping system of hospital admissions (Budi Hidayat, 2011)

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(2) What is DRG Payment? Any per-case hospital payment method in which differences in case-mix are taken into account using DRGs to classify case types (DRGs and the Medicare Program, 1983) DRGs - used in any hospital payment methods including retrospective cost-based reimbursement, but their importance use is as part of prospective per-case payment system (Per-case payment system: Any prospective hospital payment system with fixed rates of payment based on the hospital admission, not on the number and type of services or number of days of care provided)

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(3) Historical Background s- Not everyone in US had health insurance s -Medicare and Medicaid was created - Late 1960s – Design and development of DRG at Yale University by Prof Robert Fetter (Founder of DRG) as an information management tool, and a devise for adjusting hospital performance for patients characteristics - Early 1970s – First operational set of DRG at Yale University s - A lot of distrust for the US government including lack of confidence in the American medical system - President Nixon created Managed Care Organizations (MCOs) companies to provide health insurance for their employees

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- Late 1970s - First large scale application of DRG in New Jersey s - Inpatient health care –reimbursed. Health care costs were out of control. No incentive to streamline costs – US Congress amended the Social Security Act - A National DRG-based Payment System used by Medicare to move reimbursement from retrospective (cost per service) to prospective (tariff per-case) to cut costs for its beneficiaries – Eventually migrated to other payers in the US, and to most healthcare systems in affluent countries (Social insurance and NHS-based systems)

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(4) Impact of DRG - Mainly for cost-containment: create incentives for hospitals to control/reduce the costs, to reduce the LOS of patients and to increase number of inpatient admissions, increase efficiency Evidence (controversial; Pauly 2001): impact in the US – Reduction in Length of Stay (up to 25%) – Lower rate of growth of hospital costs – Decrease in hospital profit margins (~ DRG tariff: rational?) – BUT: No evidence of significant impact on quality & outcome Other effects: up-coding; effects on out-patient care costs

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(6) DRG Implementation A classification of hospital admissions – Based on data normally collected (demographic and clinical; based on the medical clinical record) – Medically reasonable and administratively manageable – Iso-resource (variance between cases in the same group kept at minimum) – Typically to each group is associated a value (tariff) or a weight Grouping Value/weight attached to each group

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European countries adopt various cost-analysis models and discretional choices on several relevant issues (allocation of overheads, direct/indirect attribution depending of the features of the information systems) – How tariffs can/should relate to costs depend on the nature of the system (NHS versus insurance-based systems) and policy objectives – Focus on direct costs [cost directly attributable to the patient (case)]

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DRG relative weight vs. HBR. DRG relative weight - Claim charges converted to cost using cost-to-charge ratios - DRG relative weight = Average cost of discharges per DRG ÷ Average cost of all discharges (eg. $ 1,200 ÷ $ 1,000 = 1.2). Hospital base rate A different rate is computed for each cost-related peer group Peer groups are chosen to minimize cost variation within groups and maximize variation between groups Peer group classification is updated each year based on current hospital characteristics and average costs

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For example: - Sara, a 72 year old widow fell off her front porch. - An ambulance transported her to Generic Hospital, a Medicare- certified hospital in San Francisco. - She is diagnosed with an open fracture of the left femur requiring surgical intervention. - In addition, physician determines from her medical history that she has NIDD with associated peripheral vascular disorder.

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Costing methods What is the cost of a health care intervention? Cost of Health Care Outside of health, most items that we purchase daily have a readily observable cost But, not true with health care – Insurance buffers patient from true cost – Charges, payments may not equal cost

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Micro- vs. Average-costing: difference? Micro-costing Determine each input, find its price, then sum (quantity*price) across all inputs Gold standard, but resource intensive Researchers use this approach in some circumstances Average-costing Over a long period, divide total cost by total units of care provided Less precise than micro-costing

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Method 2: Pseudo-Bill What is a Pseudo Bill?. It is a method of assigning prices or costs to patient care encounters Typically applied to care provided by health care systems that do not normally bill patients for care. Examples: HMOs, many foreign health care systems Is an attempt to duplicate the information normally found on a provider bill for care that does not have a bill. There are two-parts to a pseudo bill: -What services were used/provided -The unit costs of each service

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Method 3: Cost Regression Cost Function - Function is used to estimate relative value weights - Estimated from external data on cost and characteristics of stays (not from own study data) - Obtain characteristics of stay from own study - Apply function to estimate cost of stay Advantage: fewer variables than a pseudo-bill Disadvantage: could have large error for individual bills

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Combining Methods – No single method may fill all needs, even within a single study – Hybrid method may be the best Direct method or pseudo-bill on utilization most affected by intervention Cost regression or Medicare payment for other utilization

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(10) DRG and Myanmar - Too far to introduce DRG payment system - To establish it, the followings should be considered: (a) Political will for health care reform and for change of financing policy (b) Enactments including health insurance (c) Establishment of strong HIS and data libraries (d) Human resources with international exposure and experiences on health economics (e) Capacity building (f) International inputs (g) DRG Supervisory Committee (h) DRG Auditing (i) Research and Development